Debt binge may lead more home borrowers into trouble

Australia's debt binge has worsened, with more home borrowers admitting they would have trouble meeting mortgage payments in the event of a modest lift in interest rates.

One in four home borrowers would struggle to make repayments if interest rates edge up just 1 percentage point, a Hawker-Britton UMR poll of 1000 people taken between September 23-28 showed. In June last year the survey found only 15 per cent would be troubled by a rise of that magnitude.

A 2 percentage point hike in rates would leave 44 per cent of respondents in trouble, up from 32 per cent in June 2002. Almost three-quarters said a 3 percentage point rate hike would cause trouble, up from 48 per cent 15 months ago.

Bruce Hawker, the managing director of public affairs firm Hawker Britton, said: "The result shows that vulnerability to rate rises is climbing in a property market that has stretched affordability and driven household debt to record levels."

Economists said yesterday a rate rise had become more likely after Bureau of Statistics figures revealed all categories of debt rose strongly in August.

In a worrying development for the Reserve Bank, borrowing for residential property investment jumped 5.5 per cent in the month to a record $6.83 billion. It has warned segments of the house market popular with investors - especially inner-city apartments - are oversupplied and in danger of a shakeout. Investment housing lending is 35.1 per cent higher than a year ago, rising 20 per cent in the past four months.

Personal lending rose 5 per cent to a record $6.86 billion in August and revolving credit - mostly credit cards - jumped to $77.2 billion, or $4000 for every Australian.

Lending for owner-occupied housing rose 2.5 per cent, while commercial finance jumped 5.6 per cent and leasing finance surged 8.4 per cent. New personal finance commitments have risen by 20 per cent in the past four months - the strongest pace of debt creation in a decade.

Commsec senior analyst Craig James said the odds of a near-term rate hike to help slow the debt splurge were narrowing by the day. "Alarm bells should now be ringing loudly," he said.

Some economists believe rates will be 1 percentage point higher by the end of next year and financial markets are factoring in a series of hikes totalling about 0.75 percentage points by next June. However, lingering uncertainty about the world economy, the strong dollar and low inflation may mean the Reserve is more cautious about lifting rates than markets expect. The Hawker Britton UMR poll found 60 per cent of people thought home prices would keep rising.